GAO Finds Massive Fraud at For-Profit Colleges

The question remains what will be done about the practices exposed by the GAO report.

August 5, 2010

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Yesterday, the Government Accountability Office (GAO) released a sweeping report uncovering systemic deception, manipulation and “otherwise questionable” admissions and financial aid practices at 15 colleges within the rapidly expanding for-profit college market. The report even included an undercover video.

In one widely-noted case documented by the report, an admissions representative at a DC cosmetology school told a GAO investigator that barbers could earn up to $800 dollars a day, over $250,000 a year, a wildly exaggerated figure.

In other cases, financial aid representatives suggested that student loans did not need to be paid back. One financial aid representative explained, “it’s not like a car note, where if you don’t pay they’re gonna come after you.” In all 15 schools examined by the GAO, investigators found deceptive admissions practices; in some schools, the investigators were told that they could not talk to financial aid officers until after they were officially enrolled.

The report comes against the backdrop of an ever-expanding for-profit education sector, now worth over $26 billion dollars. In the last decade, enrollment at for-profit colleges has expanded from around 350,000 students to nearly 2 million students. At the same time, federal aid sent to for-profit institutions has ballooned from less than $5 billion to nearly $26.5 billion in the last decade. As the GAO report notes, many schools receive the vast majority of their funding from the government.

During the committee hearing where the GAO report was released, Sen. Tom Harkin (D-IA), chairman of the committee, noted the “cruel irony” that for-profit colleges specifically target minorities and the working class with promises of a better life, but end up saddling them up with debt.

Enticed by the language of increased opportunities, “these students typically go deeply into debt,” very often do not graduate, and, when they do, often find themselves without a job. According to a College Board report released in April, only 4 percent of students at for-profit schools graduated without debt. In comparison, less than a quarter of non-profit graduates and less than an eighth of public school graduates carried such large amounts of debt.

Moreover, many of the students who end up at for-profit institutions never graduate. Of the 15 schools examined by the GAO, 10 have graduation rates under two-thirds—one school, a Pennsylvania-based college offering a Bachelor’s Degree in Business Administration, has a graduation rate of 9 percent.

The question remains what will be done about the practices exposed by the GAO report. The Department of Education plans to release a set of rules in November to regulate Title IV federal financial aid, but this isn’t likely to stem the abuses. Sen. Harkin however suggested at the end of the hearing that he was “not certain regulations will suffice.” Rather, “really tightly designed legislation” might be necessary. What do you think is the best way to address the abuses uncovered in the GAO report? Please use the comments field below to let us know.